Apple buys internet music site Lala.com

By Andrew Edgecliffe-Johnson in New York and Joseph Menn in San Francisco

Apple bought internet music site Lala.com late on Friday for an undisclosed amount, a development that could lead to the addition of streaming songs and new payment systems at Apple’s iTunes, the world’s biggest music retailer.

Apple confirmed the deal but declined to say what it would do with Lala, which currently allows users to listen to any song or album once without paying.

IN Technology

Should Apple adopt Lala’s technology, which also allows customers to pay for the right to stream songs at will, the deal could herald big changes to iTunes, by far the largest site for paid downloads of digital music. It would stop short of adopting a subscription or advertising-supported model.

Lala is based near Apple, in Palo Alto, California, and has backers including Bain Capital Ventures, Ignition Partners and Warner Music. It has a highly efficient payment system that could allow Apple to save costs on its current e-commerce engine, one person familiar with the talks said.

Apple’s deal, a relative rarity, could also allow it to improve social tools on iTunes, allowing users more flexibility to recommend or comment on music on the store.

The takeover follows the acquisitions of digital music rivals imeem and iLike by MySpace, the News Corp-owned social media site that ranks alongside Amazon.com as one of the larger challengers to Apple’s long-held dominance in digital music.

Both Lala and MySpace received a big boost in traffic a month ago, when Google began directing people looking for songs on its search engine to tracks on their sites.

The potential diversification of the iTunes business model comes after Steve Jobs, Apple’s chief executive, yielded to music industry demands and introduced variable pricing in the iTunes store, which had charged a fixed 99 cents per song.

In May this year, Warner recorded charges of $29m, including $16m to write off its investment in imeem, and $11m to write down its investment in Lala, but it did not disclose what its current estimated fair value now stands at.